Q&A: How National Flood Services Is
Helping Agents Prepare for Risk Rating 2.0
Here in the first week of August, the agent-side rollout of Risk Rating 2.0 is only one month away, and many still have questions about what it will mean for agents and policyholders.
To help address concerns and improve agent education, National Flood Services is working to help agents prepare for the rollout of this new program. In a recent Q&A, Cynthia DiVincenti, Director of Government Relations at National Flood Services, shared her thoughts on the rollout in a recent interview.
What is National Flood Services doing to help agents prepare for the rollout of Risk Rating 2.0?
So far, we’ve launched two major initiatives: agent training webinars and a Risk Rating 2.0 resource landing page for agents. The landing page was designed to be a place where agents can go to access information about what Risk Rating 2.0 is, when it’s coming, and what it means, both for agents and for property owners.
The main message we’re trying to get out is that Risk Rating 2.0 simplifies the flood insurance quoting process. In the past, agents had to use flood manuals, maps and their related documents to calculate a premium. With the arrival of this new rating algorithm, the process is finally being modernized and becoming much simpler.
The other key message we’re sharing is that now is the time for folks who are considering purchasing a flood policy to sign up – before Risk Rating 2.0 goes into effect – so that they can take advantage of legacy rating, the statutory annual premium cap, and the glide path to the full Risk Rating 2.0 premium.
So, why does there seem to be so much confusion around Risk Rating 2.0 today?
Because this program hasn’t rolled out yet, and FEMA only recently started to share information, insurance providers and agents don’t have visibility into what’s just around the corner. They don’t know what working with this will feel like and how the agent user interfaces will change.
Many agents have heard that this update will come with more questions to help calculate risk, but the process on the agent side really won’t change much. The additional information they’ll need to enter for each property shouldn’t be anything they aren’t already familiar with, especially as the new criteria are likely already included in the property information files they have on hand.
What do agents need to know about how Risk Rating 2.0 will impact policyholders?
Risk Rating 2.0 will not come with much change for the majority of policyholders.
Agents should prepare to answer policyholder questions, of course, but these conversations won’t be much different than what agents face around regular renewals.
It’s worth flagging that while flood insurance policyholders are used to seeing their rates increase on an annual basis, some policyholders will see a decrease under Risk Rating 2.0, and this good news shouldn’t be hard to deliver.
If an agent knows that there are policyholders in their book with policies expiring between October 1, 2021, and March 31, 2022, whose premiums may increase under Risk Rating 2.0, they can let them renew at their old rating methodology until Phase 2 for renewals rolls out on April 1, 2022. With this buffer, agents will have time to learn the new rating system and get the answers they need to have productive conversations with their policyholders.
Is there concern that those who experience premium increases will drop their flood insurance coverage?
Today, a property that’s located in an A Zone one block off the coast in Florida may pay the same premium as a property located in an A Zone one block away from a stream in Nebraska. It’s not right that these two property owners should pay the same premium to be insured, as they have very different flood risks.
So, Risk Rating 2.0 is intended to bring rate equity across the entire population in the US, with premiums being based on the individual characteristics of the property, not just where it sits on a flood map.
For the people whose premiums do increase, there is still an 18 percent statutory cap on premium increases year-over-year. So, even if they’re headed toward a higher premium, it will occur on a glide path subject to the annual premium cap. It’s unlikely that this will cause those folks to drop their coverage, especially if it is a requirement of their mortgage provider. But it is something that property owners should be aware of and will need to watch for.
Again, if agents have a client who is interested in flood insurance, now is the time to make that sale. By doing this in advance of Risk Rating 2.0 going live, that policyholder will be able to take advantage of legacy rating as well as the statutory annual premium cap and the glide path to the full Risk Rating 2.0 premium.
The fact is that the 2020 hurricane season was the busiest on record, and the hurricane forecast for 2021 is not much better. Homeowners across the country are increasingly aware of their risk profiles and the damage flooding can do. This, too, plays a role in retention rates.
What would you say to those who have doubts about the changes on the way with Risk Rating 2.0?
At National Flood Services, we support changing the rating methodology and how flood premiums are developed. While most other insurance products have evolved to be more closely tied to the individual risk characteristics of the insured property, the NFIP has been using the same methodology for 50 years. These changes are what the flood insurance industry needs to do.
While any change of this magnitude raises concerns around its implementation, we feel confident about our ability to support the agent experience throughout this period of transition and how that will translate to a great policyholder experience as well.
National Flood Services is here to support agents, provide them with resources, and make this as easy on them as possible. If you have any questions about Risk Rating 2.0 or how we can help support you, contact us today.